Debit Card

Loading the player...

What is a 'Debit Card'

A payment card that deducts money directly from a consumer’s checking account to pay for a purchase. Debit cards eliminate the need to carry cash or physical checks to make purchases. In addition, debit cards, also called check cards, offer the convenience of credit cards and many of the same consumer protections when issued by major payment processors like Visa or MasterCard. Unlike credit cards, they do not allow the user to go into debt, except perhaps for small negative balances that might be incurred if the account holder has signed up for overdraft coverage. However, debit cards usually have daily purchase limits, meaning it may not be possible to make an especially large purchase with a debit card.

BREAKING DOWN 'Debit Card'

Debit cards serve a dual purpose: they allow the user to withdraw money from her checking account through an ATM or through the cash-back function many merchants offer at the point of sale, and they also allow the user to make purchases. ATM cards, by contrast, only allow the user to withdraw money from an ATM, while credit cards only allow purchases unless the credit card holder has a PIN-enabled cash advance feature (and the cash advance will incur interest, unlike withdrawing cash from a checking account).

Debit card purchases can usually be made with or without a PIN. If the card has a major payment processor’s logo, it can be run as a credit card, and the cardholder won’t need to take the risk of exposing their PIN number. The money will still come directly out of the cardholder’s checking account and there won’t be any finance charges when the debit card is run as a credit card. Some debit cards also offer reward programs similar to credit card reward programs, such as 1% back on all purchases.

Every transaction made with a debit or check card will appear on the account holder’s monthly statement, making it easy to keep track of purchases. Consumers are effectively making their purchases in cash – that is, with money they actually have, as opposed to money borrowed on credit – but unlike cash purchases, there’s no way to lose track of amounts spent on a debit card. And while lost or stolen cash is gone forever, a lost or stolen check card can be reported to the bank, which can deactivate the card, remove any fraudulent transactions from the cardholder’s account and issue a new card.

RELATED TERMS
  1. Bank Card

    Any card issued against a depositary account, such as an ATM ...
  2. Carding Forum

    A website dedicated to the sharing of stolen credit card numbers. ...
  3. Credit Card

    A card issued by a financial company giving the holder an option ...
  4. Credit Card Funding

    The ability to electronically fund a new account, business, or ...
  5. Credit Card Encryption

    Security measures used to reduce the likelihood of a credit or ...
  6. Authorized Transaction

    A credit card purchase for which the merchant has received approval ...
Related Articles
  1. Investing

    Banking: Debit Cards and ATMs

    By Amy FontinelleDebit cards and ATMs allow you to easily access the money in your checking account to pay for everyday purchases. In this section, we'll explain how they work. Debit CardsA debit ...
  2. Personal Finance

    Credit, Debit And Charge: Sizing Up The Cards In Your Wallet

    Not all plastic is equal! Learn the difference between the three kinds, and how each can affect your finances.
  3. Managing Wealth

    Debit or Credit at the Gas Pump: An Easy Choice

    Using credit rather than debit at the gas pump doesn't just provide more fraud protection. It also could give consumers lucrative benefits.
  4. Personal Finance

    Should You Pay In Cash?

    Avoiding all forms of plastic payment can do wonders for your stress level and pocket book.
  5. Personal Finance

    Credit Card Or Cash?

    Credit cards are convenient to use, but not always the best choice. Here are 5 times you shouldn't pay with a credit card – and 5 times you should.
  6. Investing

    6 Reasons You Don't Need A Prepaid Debit Card

    We'll look at six situations where a prepaid debit card might seem like a good idea, but it really isn't necessary.
  7. Personal Finance

    How Many Credit Cards Should You Have?

    Having several credit cards provides many benefits. Here are a few factors to consider when you’re deciding how many credit cards you need.
  8. Personal Finance

    10 Considerations For Using Your Credit Card Abroad

    Credit cards can be the best item you pack when traveling, just make sure that you are taking the right card that suits your needs.
  9. Personal Finance

    How to Avoid the Hijacking of Your Credit Cards

    Arm yourself with these strategies on how to safely use your credit and debit cards, and protect yourself from fraud and identity theft with every swipe.
  10. Entrepreneurship & Small Business

    How Is Cashback Profitable For Credit Card Companies?

    Cashback rewards are not as beneficial to the consumer as they might initially seem.
RELATED FAQS
  1. What are the differences between debit cards and credit cards?

    Learn how the major difference between a debit card and a credit card is where the money comes from when a customer makes ... Read Answer >>
  2. How do prepaid debit cards work?

    Learn about how prepaid debit cards work, including where they are accepted and how the financial part works like a checking ... Read Answer >>
  3. Are credit cards and debit cards considered debt instruments?

    Consumer debt instruments allow people to borrow money at specific interest rates. In recent years, the credit industry has ... Read Answer >>
  4. Where are secured credit cards accepted?

    Repair a damaged credit history or establish one by opening a secured credit card account with a collateral deposit into ... Read Answer >>
  5. Am I responsible for fraudulent charges on my credit card?

    In the event that your credit card is stolen in the United States, federal law limits the liability of card holders to $5 ... Read Answer >>
  6. What are some examples of common credit card reward program benefits?

    Learn about different benefits available to credit card holders including cash back, air travel miles, introductory rates, ... Read Answer >>
Hot Definitions
  1. Cyclical Stock

    An equity security whose price is affected by ups and downs in the overall economy. Cyclical stocks typically relate to companies ...
  2. Front Running

    The unethical practice of a broker trading an equity based on information from the analyst department before his or her clients ...
  3. After-Hours Trading - AHT

    Trading after regular trading hours on the major exchanges. The increasing popularity of electronic communication networks ...
  4. Omnibus Account

    An account between two futures merchants (brokers). It involves the transaction of individual accounts which are combined ...
  5. Weighted Average Life - WAL

    The average number of years for which each dollar of unpaid principal on a loan or mortgage remains outstanding. Once calculated, ...
  6. Real Rate Of Return

    The annual percentage return realized on an investment, which is adjusted for changes in prices due to inflation or other ...
Trading Center